News : Another argument for going big on stimulus — Debt soars

Friday, February 12, 2021

Another argument for going big on stimulus — Debt soars — SEC moves on meme stock

Feb 12, 2021

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Quick Fix

Another argument for going big on stimulus — MM's piece on risks to the economy and markets (a surge in Covid on one hand and a burst of inflation on the other) generated a lot of email and Twitter traffic. Most argued that while inflation is a risk, we have tools to manage it.

And the bigger risk, most argued, is doing too little on the stimulus front and winding up with a slow, plodding recovery like the one following the financial crisis. Of course, this downturn is very different from 2008-2009 and doesn't feature the kind of fundamental economic blowup that came following the housing crash and took years to repair. The potential exists for a much more rapid comeback this time (hence the inflation fears.)

But one major factor arguing in favor of enacting President Biden's full $1.9 trillion package (which we will be able to focus on again once the impeachment trial is over this weekend) is the rapid rise of Covid-19 variants like B.1.1.7 which recently began doubling in the U.S. every 10 days.

MM reads tons of articles on this and there doesn't seem to be a consensus yet on whether vaccine distribution, which is about to get a big boost in the U.S. with 200 million new doses , will be able to outstrip variants and keep the nation on course to herd immunity and a mostly full re-opening by late spring or early summer.

A lot appears to depend on how vigilant people remain on masking and other transmission precautions. We lean to the hopeful camp. But the risk that re-opening gets delayed by Covid variants seems to argue fairly strongly in favor of not worrying too much about the inflation risk inherent in pumping so much cash into the system just as demand may explode with not enough supply to match it.

Fed Chair Jerome Powell clearly leaned in that direction this week, offering Democrats a strong weapon to argue in favor of going big.

And outside Biden economic adviser Gene Sperling texted MM: "The risks of the continuing economic or new Covid challenges leading to significant long-term unemployment and harming the most vulnerable workers seems so much greater than the risks of a surge of inflation due to giving robust relief to states and low-income and middle class families.

He added: "When balancing risks the risks of inflation and recovery one has to look at not just at overall GDP and technical output gaps but the chances of a severe K recovery where too many lower income workers and families of color are disproportionately hurt and left behind." (More on this just below.)

GOOD FRIDAY MORNING — Happy long President's Day weekend, all. We will see you back here on Tuesday. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver.

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Driving the Day

MORE DATA ON WHY TO GO BIG — Per new analysis of consumer finance data from Morning Consult economist John Leer out this morning: "In January, 16% of US adults say their expenses exceeded their incomes for the month, largely concentrated among low-income households. Among the 30.2M adults who couldn't pay their bills, 75% fell short by less than $300, an improvement from December that shows stimulus checks are bringing people closer to covering their expenses.

"If stimulus checks are sent on March 1, the payments would allow 22.6 million Americans to pay their bills in full through the middle of July. Americans with annual household incomes under $50,000 already spent roughly 67% of the money they received in the second stimulus."

COUNTER-POINT — AEI's Michael Strain on Bloomberg Opinion: "At a time when the economy is growing rapidly again, the last thing Congress should do is make unemployment more financially rewarding than working.

"Unfortunately, a part of … Biden's $1.9 trillion pandemic relief plan would do just that. The president proposes paying unemployed workers a $400 weekly supplement on top of other jobless benefits they receive. If adopted, the additional funds will have the perverse effect of hurting the labor market, leading to more joblessness."

BIDEN GETS A BIG HONEYMOON — Via CNBC's All-America Economic Survey of 1,000 run by Steve Liesman: "Biden is on the best presidential honeymoon going back at least to Bill Clinton in 1993. A special online edition of the CNBC All-America Economic Survey focusing on the Biden agenda finds his approval rating at a sky-high 62%, beating the first presidential ratings of Presidents Barack Obama, George W. Bush, Bill Clinton and Donald Trump. In fact, Biden's initial rating is 18 points higher than Trump's.

"The survey of 1,000 people conducted earlier this month sees Biden with majority approval for his handling of the economy and for uniting the country. Sixty-five percent of the public approve of his actions so far when it comes to fighting the coronavirus pandemic."

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First Look

NEW AT THE NYSE — Via release going out later this morning: "Intercontinental Exchange, Inc. has appointed Amanda Hindlian as Head of Capital Markets for NYSE Group. Hindlian a former Partner at Goldman Sachs, will now lead the NYSE's team that brings new listings to the Exchange."

STILL MAY BE TOUGH TO DO INFRASTRUCTURE — Our Tanya Snyder: "Biden met in the Oval Office Thursday morning with senators and others who will be key to moving his climate and infrastructure goals through Congress, but after the meeting officials made clear that they still are figuring out just how big to go with any eventual legislative package, illustrating the challenges ahead.

"Biden campaigned on a $2 trillion package that married infrastructure investments with sweeping climate change goals and other items such as broadband deployment. But now that policymakers are beginning talks on how to turn that into reality, they are confronted with the same set of obstacles that have dogged prior attempts, chief among them how to pay for everything they want to do."

DEBT TO EXCEED SIZE OF THE ECONOMY THIS YEAR — Our Caitlin Emma: "Federal debt will exceed the size of the U.S. economy by the end of this year, even without more coronavirus relief from Congress, the Congressional Budget Office said … in its latest estimates for the next decade.

"Federal debt held by the public is expected to soar to nearly $22.5 trillion by the end of the year, reaching 102 percent of GDP. While the debt's size relative to the economy is then expected to shrink for a few years, the nonpartisan budget scorekeeper projected that the debt will reach more than $35 trillion, or 107 percent of GDP, by 2031 — 'the highest in the nation's history.'"

SEC HALTS TRADING IN SOCIAL MEDIA-PROMOTED STOCK — Our Kellie Mejdrich: "The SEC … halted stock trading in an inactive medical device company, citing social media posts promoting the Minnesota-based business linked to trading activity. The agency's action comes as the regulator has stepped up its scrutiny of social media activity in recent weeks in the wake of the trading frenzy over video game retailer GameStop and other struggling companies."

Markets

NASDAQ GAINS ON TECH STOCKS — Reuters' Herbert Lash: "The Nasdaq and S&P 500 eked out modest gains on Thursday with investors betting on more fiscal stimulus, but U.S. President Joe Biden said China was poised to 'eat our lunch,' a warning that tempered enthusiasm for a market near record highs.

"Nvidia Corp rose 3.2 percent and Intel Corp 3.1 percent, making technology the only sector on the S&P 500 and Nasdaq to rise, with all others declining. Declining shares outnumbered gainers on the Nasdaq and New York Stock Exchange."

WALL STREET GETS SHORT LEASH AS SEC CRACKS DOWN ON REPEAT OFFENDERS — Bloomberg's Benjamin Bain: "Biden's victory is already leading to consequences for Wall Street, as U.S. regulators are scrapping a Trump-era policy that critics contend helped insulate firms from tougher penalties.

"At issue are waivers that banks, hedge funds and other financial companies must obtain to protect themselves from knock-on sanctions that are automatically triggered when they settle enforcement cases with the Securities and Exchange Commission. In a major policy shift, the SEC said Thursday it would make it harder for firms to obtain such reprieves."

GAMESTOP MANIA IS FOCUS OF FEDERAL PROBES INTO POSSIBLE MANIUPULATION — WSJ's Dave Michaels: "Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct fueled the rapid rise last month in prices of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc., according to people familiar with the matter."

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Fly Around

FORECASTERS LIFT EXPECTATIONS FOR 2021 ECONOMIC GROWTH — WSJ's Gwynn Guilford and Anthony DeBarros: "Forecasters are increasingly optimistic about economic growth this year, though less so about the labor market's prospects, as it recovers from the effects of the coronavirus pandemic, a new Wall Street Journal survey shows.

"Economists on average expected gross domestic product to expand nearly 4.9 percent this year, measured from the fourth quarter of the prior year, according to the business and academic economists surveyed in February, an improvement from their 4.3 percent forecast in January."

SENATORS PUSH YELLEN ON TUBMAN $20 BILL REDESIGN — NYT's Alan Rappeport: "The effort to make Harriet Tubman the face of the $20 note got a bipartisan push this week as two senators urged Treasury Secretary Janet L. Yellen to prioritize the planned redesign that stalled during the Trump administration.

"Senator Jeanne Shaheen, Democrat of New Hampshire, and Senator Ben Sasse, Republican of Nebraska, sent a letter to Ms. Yellen this week making the case that America's currency should reflect the diversity of the country."

BITCOIN SOARS TO ALL-TIME HIGH AFTER BNY MELLON EMBRACES CRYPTO — Reuters' Gertrude Chavez-Dreyfuss: "Bitcoin on Thursday jumped to a fresh all-time high after BNY Mellon said it formed a new unit to help clients hold, transfer, and issue digital assets. The new unit at BNY Mellon is expected to roll out the offerings later this year, the bank said."

ICYMI: THE ECONOMIC CASE FOR REGULATING SOCIAL MEDIA — NYT's Robert H. Frank: "Social media platforms like Facebook, YouTube and Twitter generate revenue by using detailed behavioral information to direct ads to individual users. That sounds straightforward enough. But this bland description of their business model fails to convey even a hint of its profound threat to the nation's political and social stability."

TRANSITIONS — Per release: "FOX Business Network (FBN) has signed Spectrum News NY1 investigative reporter Lydia Hu as a New York-based correspondent, the network announced today. She will begin her new role on Monday, February 15th."

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